Texas refinancing can be challenging if you haven't done your homework and know what you are getting into. Make sure you understand how a typical Texas mortgage refinance works before you jump into the process. The Texas cash-out refinance option is allows you to take advantage of lower interest rates and get the most out of the equity in your current home.

Start your Texas home refinance with a simple course in the refinance business. Texans should be aware of the 80 percent cap on available refinancing funds, meaning you can get up to 80 percent of the value of your property out of it while refinancing. Review mortgage lender information, but also find helpful advice from other neutral experts before making a refinancing decision. Start by:

1. Reviewing Texas refinance regulations.

2. Finding out your refinancing options by taking a look at all the refinance rates in Texas.

3. Getting expert advice before starting the refinancing process.

Action Steps
The best contacts and resources to help you get it done

Review how to refinance in Texas for beginners

When you are considering a cash-out mortgage, Texas laws and regulations need to be your first priority. Do some research and get a good understanding of how the Texas cash out refi process works. Learn what type of equity is available in your property, and find out how you can use that equity to get cash for improvements, debt consolidation or other expenses.

I recommend: Review the refinancing process with help from the Texas Office of Consumer Credit Commissioner. Read the refinancing article posted by Texas Entertainment Magazine.

Find Texas refinance rates and options from mortgage brokers

Use resources provided by leading mortgage brokers to consider different refinance options. Read rate trends, and find out what the pros and cons of refinancing in your situation would be. A broker will be quick to point out that when you can't qualify for a rate that's less than one-half a percent point lower, refinancing isn't advantageous for you.

I recommend: Get help understanding the process from Mortgage Loan Place. You can also use one of many tools available at the Refinance Texas Mortgage website including mortgage calculators and interest rate tables.

Get expert opinions on the best refinance rates in Texas

Once you've come to a good understanding of the refinance process in Texas, including the cash out option, finding the best rates and a mortgage lender that you know you can trust can be difficult. If you need a third-person opinion, consider looking to government and independent agencies that are there to help you make a choice and get the most out of your refinance.

I recommend: Ask Refinancing Right for help, or browse the wealth of information available at their website to help you choose which refinance options are best for you. If you run into problems finding a refinance option, use the resources provided by Making Home Affordable.

In 1997, the Texas Constitution was amended to allow homeowners to refinance in Texas to get a cash out based on the amount of equity in their homesteads. The amendment provides the terms under which you may refinance the mortgage on your primary residence in Texas for the cash you need to establish a college fund for your children, create a retirement account, make home improvements, consolidate debt or for your discretionary use.

If you're thinking about refinancing, here are some of the relevant provisions of the amendment pertaining to cash out mortgages in Texas:

1. The aggregate amount of all mortgage liens on your homestead is restricted to 80% of the home’s fair market value. This means that the loan amount of the cash out refinance mortgage, plus the unpaid principal balance of any second lien with the new refinance loan, divided by the appraised value of your home must be less than or equal to 80%.

2. A cash out refinance in Texas cannot close until 12 days have elapsed since you signed the mortgage loan application. Additionally, after your sign the loan documents for the refinance, you still have 3 days to change your mind and rescind the loan.

3. The total amount of the fees for a Texas cash out refinance that a lender can collect may not exceed 3% of the loan amount.

4. If your homestead is used for agricultural purposes it is not eligible for cash out refinancing in Texas, unless it is used for milk production.

5. A lender cannot require that you pay off any debt as condition for your Texas refinance unless it is a lien on the property.

Action Steps
The best contacts and resources to help you get it done

Find out what your home is worth

A Texas mortgage refinance for cash out is dependent on your home's value. Use the internet to compare your home to homes nearby with similar square footage and other characteristics to give you an idea of what your property is worth.

I recommend: Before contacting a lender about a Texas mortgage refinance, look for what houses are selling for in your area. Trulia and Zillow are both websites that give you the asking prices for homes near you, as well as recent sales. Use your county's appraisal district website as another source for finding the value of your home

Shop around for the best rate

You are not obligated to do a cash out refinance in Texas with your current lender. Investigate several sources, including credit unions and banks, in addition to mortgage companies to find the best refinance rates in Texas.

I recommend: Go ahead and ask the mortgage company servicing the existing mortgage on your home what their rates are for a Texas mortgage refinance. Countrywide and Washington Mutual are two of the larger mortgage lenders in the country, but check with other sources for rates before deciding which lender to use.

Make sure cash out refinance is the best option for you

Instead of a cash out mortgage, you may decide you would prefer a Home Equity Line of Credit which would allow you to take draws against the line for the amount of cash you may need at any given time.

I recommend: Capital One and Bank of America are providers of Texas refinance loans and Home Equity loans.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Ask yourself if a cash out refinance mortgage is going to put you in a better financial position.
• •  Don't choose to an interest only loan for your Texas home refinance. The rates will go up, and your payment will skyrocket.

A mortgage refinance is a loan that a property owner secures to pay off an existing mortgage and replace it with a new mortgage. A property owner may choose to refinance a mortgage in Texas for several reasons, all of which are in the interest of improving that party's financial situation. In some cases, a mortgage holder may want to lower their monthly mortgage payment by lengthening the term of the mortgage loan or securing a lower interest rate. Some property owners may opt for a higher payment paid for a shorter period of time to save interest payments and cut years off the loan terms. Others may need to draw on the equity they have in their home to access cash.

Regardless of a property owner's reasons for refinancing a loan, there are certain key terms any Texas property owner should know before meeting with their loan officer to draw up mortgage papers.

Action Steps
The best contacts and resources to help you get it done

Loan term reduction

Property owners in Texas interested in shortening the term of their existing loan can do a loan term reduction refinance. This type of mortgage refinance might mean slightly higher monthly payments, but can mean cutting years and thousands of dollars in interest from your mortgage terms.

I recommend: Mortgage Loans Texas Division explains the benefits of securing a loan term reduction refinance.

Home equity line of credit

A home equity line of credit is a type of refinance loan in Texas in which you are borrowing against the equity (value) you have built by paying your loan. Your equity amount is the difference between the home's value and the amount owed on your mortgage. The more mortgage payments you have made, the higher the amount of available equity funds available.

I recommend: The Office of Consumer Credit Commissioner defines home equity loans.

Real Estate Settlement Procedures Act (RESPA)

The Real Estate Settlement Procedures Act protects loan customers throughout the mortgage process. The US government enacted RESPA to ensure that lenders practice full disclosure of all mortgage and service fees.

I recommend: The US Department of Housing and Urban Development provides a full explanation of RESPA.

Private Mortgage Insurance (PMI)

Mortgage holders in Texas are required to carry private mortgage insurance on any mortgage loan (original or refinanced) for 80% or more of the value of the property. Refinancing a mortgage after two or more years could help you alter the amount of time that you are required to pay PMI.

I recommend: Southern Lending Corporation fully explains private mortgage insurance and how you can reduce the length of time you're paying PMI.

Debt-to-income ratio

The debt-to-income (DTI) ratio is a calculation of the borrower's monthly debt payments and gross monthly income. This ratio is used nationwide, including by Texas lenders, to determine the amount of mortgage refinance for which a borrower qualifies.

I recommend: MortgageLoan.com explains how the DTI ratio is used to determine risk when approving or denying loan terms to a borrower.

Loan-to-value (LTV) ratio

Property owners wishing to refinance their mortgage loans in Texas need to understand their loan-to-value (LTV) ratio. The LTV is the ratio between the loan amount and the value of the property (whichever is lower between the appraised value and the sale price).

I recommend: PrimeLending provides a sample calculation of the loan-to-value ratio.